What is index tranche?

CDS index tranches are synthetic collateralised debt obligations (CDOs) based on a CDS index, where each tranche references a different segment of the loss distribution of the underlying CDS index. This typically includes one or more investment grade classes and an equity (first loss) tranche.

What is correlation smile?

The observed correlation smile is many times perceived by the market participants to be an indicator of relative richness or cheapness of tranches on a given reference portfolio. The spreads on the senior tranches increase as correlations among credits increase.

What is base correlation?

Base Correlations are defined as the correlation inputs required for a series of first loss tranches that give the tranche values consistent with quoted spreads, using a standardised model. Equivalently, we can quote these same Base Correlations for the upper attachment point of these tranches.

What is CDX tranche?

Tranches on CDX. Protection seller compensates for losses on the index in excess of one level (the attachment point) and up to a second level (the detachment point). For example, on the 3-7% tranche of the CDX, protection seller pays losses over 3% (attachment) and up to 7% (detachment).

What is CDX factor?

Cdx genes are transcription factors that are influenced by signaling molecules such as Wnt, Retinoic acid and FGF (fibroblast growth factor) during body plan establishment in the developing embryo.

Do rare events explain CDX tranche spreads?

We find that the model can simultaneously explain prices on CDX senior tranches and on equity index options at parameter values that are consistent with the equity premium and with aggregate stock market volatility. …

What is a DOC clause?

Restructuring. These codes or “doc clauses” are used for a variety of purposes, but. mainly serve to assist the industry identify transactions from a pricing perspective. Markit uses the doc clauses to assist several clearing houses, their members, and member customers to submit settlement prices on a daily basis.

What is the difference between correlation and causation?

Correlation means there is a relationship or pattern between the values of two variables. A scatterplot displays data about two variables as a set of points in the -plane and is a useful tool for determining if there is a correlation between the variables. Causation means that one event causes another event to occur.

How to calculate compound correlation of market tranche?

To calculate the compound correlation of a market tranche, we set the contractual spread equal to the observed market quote and, by definition, the present value of the tranche should be equal to zero: ( , , , ) 0 1 2 1 , 2 1 , 2 PVtranche K K SK K ρK K = and we solve for K1,K2. ρ= ρ .

Can a correlational design be used to test causation?

You’ll need to use an appropriate research design to distinguish between correlational and causal relationships. Correlational research designs can only demonstrate correlational links between variables, while experimental designs can test causation. What can proofreading do for your paper?

Can a confounding variable make a correlation seem causal?

Confounding variables can make it seem as though a correlational relationship is causal when it isn’t. In your study on violent video games and aggression, parental attention is a confounding variable that could influence how much children use violent video games and their behavioral tendencies.